Opinion
NO. 2013-CA-001878-MR
05-01-2015
PROSPECT CAPITAL CORPORATION and NORTH FORK COLLIERIES, INC. APPELLANTS v. TRAVELER COAL, LLC; BARRY KEVIN HALL; and COMMUNITY TRUST BANK, INC. APPELLEES
BRIEF FOR APPELLANT: David Stratton Pikeville, Kentucky BRIEF FOR APPELLEE: TRAVELER COAL, LLC BARRY KEVIN HALL Max K. Thompson Todd P. Kennedy Pikeville, Kentucky COMMUNITY TRUST BANK, INC. Kathryn B. Kendrik Lexington, Kentucky
NOT TO BE PUBLISHED APPEAL FROM PIKE CIRCUIT COURT
HONORABLE STEVEN D.
ACTION NO. 13-CI-00564
OPINION
AFFIRMING IN PART AND DISMISSING IN PART
BEFORE: COMBS, NICKELL, AND TAYLOR, JUDGES. COMBS, JUDGE: Prospect Capital Corporation is a New York-based, publicly traded, private equity firm; its affiliate, North Fork Collieries, LLC, has its principal place of business in Hazard, Kentucky. Prospect Capital and North Fork appeal from an October 1, 2013, order of the Pike Circuit Court that denied their motion to enforce an arbitration award in their favor and the judgment of the Supreme Court of the State of New York confirming the award on default. They also appeal an order of the Pike Circuit Court that granted the motion of Community Trust Bank, Inc., to be dismissed as a party to the underlying interpleader action following its deposit of disputed funds into court. For the reasons stated, we affirm the trial court's order dismissing the bank as a party; however, we dismiss that portion of the appeal that relates to the denial of the motion to enforce the arbitration award.
North Fork operated a surface coal mining business in Pikeville, Kentucky. On June 9, 2011, the Energy and Environment Cabinet filed an administrative complaint against North Fork seeking revocation of its mining permit. The controversy underlying this appeal concerns the disposition of funds remaining after certain letters of credit (totaling $233,300.00) were paid to the Kentucky State Treasurer. These letters of credit were issued in favor of the Cabinet to guarantee proper reclamation of the area covered by the surface mining permit. The bonds were forfeited upon a final order of the Energy and Environment Cabinet. The Cabinet concluded that North Fork had violated the conditions of its surface coal mining and reclamation operations permit, Kentucky surface mining laws and regulations, and certain cessation orders. Its final administrative order was entered on October 4, 2011.
After the administrative order of the Energy and Environment Cabinet was entered and the demanded payment made, Community Trust Bank informed North Fork and Prospect Capital that a balance of $18,740.08 remained on account at the bank. Community Trust Bank also informed Traveler Coal, LLC, a Kentucky corporation headquartered in Pikeville, and Barry Hall, its initial sole owner and manager, that those funds remained. Community Trust Bank did not immediately pay over the remaining sum to any party because it was aware of the contentious business relationship that existed between these two entities. Additionally, the bank was a party to a settlement agreement that sought to resolve their financial disputes. Because the bank was uncertain as to whom the disputed sum belonged, it eventually filed a complaint for declaratory judgment and offered to pay the remaining balance into court.
At this juncture, it is necessary to review the business relationships that pre-dated the current dispute. In November 2006, Traveler Coal and Hall obtained a $6.3 million line of credit from Community Trust Bank. The loan was secured by various mortgages and other liens as well as by the personal guarantees of Hall and his wife, Leetha. In 2007, representatives of Prospect Capital approached Hall with an offer to buy his business and to employ him as its manager. In February 2008, the parties agreed that Hall would sell his business and its assets to Prospect's affiliate, North Fork, in exchange for North Fork's assumption of certain business debts (including the outstanding debt to Community Trust Bank) and North Fork's agreement to employ Hall as its manager. North Fork and Prospect Capital agreed to indemnify the Halls and Traveler Coal for any amounts which they might be required to pay in the event of North Fork's default.
In August 2009, North Fork notified Community Trust Bank of its intent to default on the loan that it had assumed on behalf of Traveler Coal. Later that month, as soon as the default became official, Hall, his wife, and Traveler Coal filed an action in Pike Circuit Court against North Fork. North Fork promptly sought to have the action dismissed or stayed pending arbitration. The trial court denied those motions by order entered October 13, 2009. Pursuant to Kentucky Rule[s] of Civil Procedure (CR) 65.07, North Fork sought interlocutory review in this Court and, eventually, in the Supreme Court of Kentucky. North Fork Collieries, LLC v. Hall, 322 S.W.3d 98 (Ky. 2010).
In its opinion rendered September 23, 2010, our Supreme Court held that the competing factions were bound by the terms of an Asset Purchase Agreement to arbitrate their dispute regarding North Fork's obligation both to Traveler Coal and to Hall and his wife: i.e., to repay the loan to the Community Trust Bank and to indemnify the Halls and Traveler Coal. The agreement specifically provided that any arbitration proceedings would be conducted in New York. On appeal, our Supreme Court concluded that the Pike Circuit Court abused its discretion by failing to enforce the arbitration clause included in the parties' agreement.
The Cabinet filed its administrative complaint against North Fork seeking revocation of its mining permit. On June 24, 2011, the parties (including the bank) entered into a confidential settlement agreement that purported to resolve any and all manner of actions, causes of action, debts, and damages known or unknown between them. It specifically addressed the deficiency balance of the loan made by Community Trust Bank and the release of any reclamation bond collateral held by the bank. The agreement provided that it would be construed and enforced in accordance with and governed by the laws of Kentucky. In conjunction with the settlement agreement, the New York arbitration proceedings initiated by Prospect Capital were apparently concluded without resolution. On October 4, 2011, the secretary's final order was entered demanding forfeiture of the performance bond.
A copy of the settlement agreement was eventually made part of the certified record on appeal by order of this court.
At the time that the settlement agreement was executed, none of the parties realized that a balance of $18,740.08 would remain on hand at Community Trust Bank subsequent to the forfeiture of the letters of credit which had guaranteed reclamation of the mined property. This balance constituted the interest that had accumulated on the bonds while the mining operation had been operating.
During October 2011, the adverse parties submitted written demands to the bank for the surplus. Each of the parties relied upon the terms of the Asset Purchase Agreement to support its claim to the disputed sum.
On May 17, 2012, Prospect Capital initiated a new arbitration proceeding in New York aimed at determining which faction was entitled to the disputed funds. Hall was named as the respondent in the proceeding. On October 4, 2012, a New York arbitrator awarded to Prospect Capital the entirety of the $18,740.08 held by Community Trust Bank; prejudgment interest; and the costs of arbitration. The arbitrator noted that Hall had been duly served with notice of the proceedings by mail but that he had failed to respond. Hall was ordered by the arbitrator to instruct the bank to distribute the disputed sums to Prospect Capital within five business days.
On May 24, 2013, the bank filed a complaint in Pike Circuit Court for declaratory judgment and offered to pay the disputed sum into court. In June 2013, Prospect Capital responded to the bank's motion for interpleader by filing a motion to stay the action pending a resolution of an action filed in New York state court to confirm the arbitration award. The Pike Circuit Court granted the motion and stayed the proceedings.
On July 16, 2013, the New York court rendered a judgment confirming -- on default -- the arbitration award entered in favor of Prospect Capital. The New York court observed that a copy of the arbitration award had been delivered to the parties and that neither of them had sought de novo review. The court awarded Prospect Capital judgment against Hall in the amount of $18,740.08, plus prejudgment interest; post-judgment interest; and the costs of arbitration. The judgment was entered by the New York County Clerk on July 17, 2013.
On August 26, 2013, Prospect Capital filed a motion in the interpleader action to enforce the New York judgment. On September 24, 2013, Hall and Traveler Coal filed a response to the motion. They contended that Prospect Capital was not entitled to seek arbitration in New York following execution of the parties' 2011 settlement agreement. They argued that after its execution, the parties were bound only by the provisions of the settlement agreement which provided that its terms would be construed according to Kentucky law and which made no provision for arbitration. In a separate argument, Hall and Traveler Coal contended that the New York arbitration, award, and judgment were deficient as a matter of law. They argued that Hall was never properly served with notice of the arbitration proceedings and the subsequent motion to confirm the award in New York state court and that Prospect Capital had omitted Traveler Coal, an indispensible party to the proceedings.
On October 1, 2013, two orders of the Pike Circuit Court were entered in this matter. First, the court granted the bank's motion for interpleader. The bank was ordered to deposit the disputed funds with the court, and it was dismissed from further participation in the proceedings. This order was made final and appealable by the court. Second, the court summarily denied the motion to enforce the New York judgment and arbitration award.
On October 30, 2013, Prospect Capital and North Fork filed a notice of appeal. They sought to appeal both orders of the Pike Circuit Court. No final determination was made with respect to which of the competing factions has the superior right to the disputed funds. Therefore, those funds remain on deposit in their entirety with the trial court.
On appeal, Prospect Capital first contends that the circuit court erred by dismissing Community Trust Bank from the interpleader action. Prospect Capital argues that the court's ruling deprives it of the ability to seek damages from the bank for its failure to transfer the contested sums to Prospect Capital upon demand. We disagree.
Faced with competing claims for the surplus funds, the bank filed an interpleader action pursuant to the provisions of Kentucky Rule[s] of Civil Procedure (CR) 22. That rule provides that "[p]ersons having claims against the plaintiff may be joined as defendants and required to interplead when their claims are such that the plaintiff is or may be exposed to double or multiple liability." CR 22. The filing of an interpleader action was entirely proper under the circumstances. Pursuant to the provisions of CR 67, the bank was permitted, with leave, to deposit the surplus money with the court pending a final disposition. The court granted the bank leave to deposit the money, and it did so. Since no claims against Community Trust Bank were pending, the circuit court did not abuse its discretion by dismissing the bank from the proceedings. Consequently, its order is affirmed.
Next, Prospect Capital contends that the trial court erred by failing to grant its motion filed in the interpleader action to enforce the judgment of the New York state court. However, we conclude that the court's order denying the motion is merely interlocutory and, therefore, it is not subject to our immediate review.
This court is vested with jurisdiction over appeals from final orders and judgments. Kentucky Revised Statute[s] (KRS) 22A.020(1). "A final or appealable judgment is a final order adjudicating all the rights of all the parties in an action or proceeding, or a judgment made final under Rule 54.02." CR 54.01. The order denying the motion of Prospect Capital did not adjudicate all the rights of the parties; it did not attempt to finally dispose of the action. Instead, it merely denied the motion of Prospect Capital to turn over the disputed funds based upon exhibits that tended to show that an arbitration award in its favor had been confirmed by a state court of New York.
We agree with the assertion of Prospect Capital that the Full Faith and Credit Clause of the United States Constitution requires that a validly rendered judgment of the court of one state be given the same validity and effect in every other state as it has in the state which renders it. We also agree that full faith and credit must be given to a judgment that results from the confirmation of an arbitration award in a state court. However, we are not persuaded that the circuit court's order rejecting the binding effect of the New York state court judgment under the circumstances presented here is immediately appealable since there is nothing in the record to indicate that the foreign judgment was ever domesticated.
The General Assembly adopted the Uniform Enforcement of Foreign Judgments Act at KRS 426.950-990. A foreign judgment is defined as "any judgment, decree, or order of a court of the United States or any other court which is entitled to full faith and credit in this Commonwealth." KRS 426.950. The simple procedure for the domestication of a foreign judgment is set forth in KRS 426.955 as follows:
A copy of any foreign judgment authenticated in accordance with the Act of Congress or the statutes of this state may be filed in the office of the clerk of any court of competent jurisdiction of this state. The clerk shall treat the foreign judgment in the same manner as a judgment of any court of this state. A judgment so filed has the same effect and is subject to the same procedures, defenses and proceedings for reopening, vacating, or staying as a judgment of a court of this state and may be enforced or satisfied in like manner.
The record on appeal of this matter was initially certified by the Pike Circuit Clerk on January 2, 2014. On May 28, 2014, upon motion of Hall and Traveler Coal, this court directed the clerk of the Pike Circuit Court to certify a supplemental record to include a sealed copy of the parties' settlement agreement. On July 30, 2014, after considering the motion of Prospect Capital to supplement the record again, this Court ordered that the appeal be held in abeyance pending a decision of the Pike Circuit Court as to whether the requested material (i.e., a series of electronic mail communications) should be included in the record on appeal. The Pike Circuit Court granted the motion, and the certified record was duly supplemented a second time.
While we are persuaded that we now have before us a complete certified record, there is still no indication that the foreign judgment upon which Prospect Capital relies was properly domesticated. There is nothing to suggest that a copy of an authenticated judgment of the New York state court was ever filed in the office of the Pike Circuit Clerk. Under these circumstances, the trial court's order denying the motion simply left open for its later determination the single issue of the rightful owner of the disputed funds. Therefore, a review of the trial court's decision cannot be undertaken as yet, and this portion of the appeal must be dismissed.
The order of the Pike Circuit Court dismissing Community Trust Bank as a party is affirmed. The remainder of the appeal is dismissed.
ALL CONCUR. BRIEF FOR APPELLANT: David Stratton
Pikeville, Kentucky
BRIEF FOR APPELLEE: TRAVELER COAL, LLC
BARRY KEVIN HALL
Max K. Thompson
Todd P. Kennedy
Pikeville, Kentucky
COMMUNITY TRUST BANK, INC.
Kathryn B. Kendrik
Lexington, Kentucky